UNDERSTANDING THE CALIFORNIA ASSOCIATION OF REALTOR’S “CORONAVIRUS ADDENDUM”

CVA with red stamp overlayed reading "Coronavirus Addendum"

Over the course of the last two weeks, our lives have drastically changed. The emergence of the worldwide Coronavirus pandemic has created uncertainty in the economy not seen in years.  It was inevitable that this uncertainty would present itself in the real estate industry.  Like most brokerages, we have seen our share of listings canceled, but this uncertainty has yet to affect any individual transaction.

To address this uncertainty in the real estate industry, The California Association of Realtors (CAR) has released a form entitled “Coronavirus Addendum/Amendment” (“CVA”). The CVA essentially allows a Buyer or Seller to postpone or cancel an agreement if they are prevented from closing a transaction because of “unforeseen circumstance related to the COVID-19.”

The CVA is what we call in the legal profession as a force majeure clause. A force majeure clause excuses a party from performing under a contract, if their performance becomes implausible or impractical, because of some unforeseen or unanticipated event. In our case, COVID-19.

In analyzing the CVA, the basis for the entire addendum is the following language, “unforeseen circumstance related to the COVID-19.” This language is extremely broad and lends itself to interpretation.

However, the CVA provides some guidance on how to interpret the language.  The CVA lists such examples as Buyer or Seller not being able to travel to sign documents or delays caused by lenders or government agencies.  The point to be taken from these examples is that the unforeseen circumstances must be directly related to COVID-19.

In analyzing the CVA further, the addendum will at a minimum allow Buyer and/or Seller to postpone escrow because of unforeseen circumstances. The suggested length of postponement is 30 days but can be longer by agreement of the parties.  If the escrow cannot be closed by the end of the postponement period, either party may cancel. It is important to note that notices to perform or demands to close escrow forms will not be required.  A party can simply cancel.

The addendum also contains two alternate provisions. The first provision at paragraph two of the addendum allows Buyer to cancel the agreement, whether or not the loan contingency has been removed, if they are unable to fund their loan or close escrow because of a loss of income. This provision addresses the fact that there are Buyers who may have been able to obtain financing prior to COVID-19, but because of loss of employment or reduced income are no longer eligible. The unique aspect of the provision is that it allows the Buyer to cancel even if they have already removed their loan contingency. As such, it is important that Buyers and Sellers are counseled about this fact.

The second provision allows Buyer and Seller to mutually cancel the agreement if unforeseen circumstances arise, without any postponement period.

It should also be noted that paragraph 4 of the addendum provides Buyer and Seller the opportunity to place additional provisions in the addendum, but it should only be used on a transaction by transaction basis.  Most Buyers and Sellers will find that the addendum is quite comprehensive.

Also, the addendum can only be used if both Buyer and Seller agree.

Finally, the next few weeks will determine whether the provisions outlined in this addendum will be needed. The hope is that the addendum will not be needed, and this pandemic will soon pass. In the meantime, as Realtors you must be prepared for what happens and protect your clients accordingly.

About Tim Burke

Tim is a licensed attorney in California and Nevada. He brings over 19 years of transactional and litigation experience to JohnHart. Prior to joining JohnHart, Tim was in private practice providing legal guidance to clients on Real Estate, financial, corporate, estate planning, and employment matters.

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